Fiscal Action Now

“Every member in this chamber,” President Bush said during last month’s State of the Union address, “knows that spending on entitlement programs like Social Security, Medicare and Medicaid is growing faster than we can afford.”

How fast? U.S. Comptroller General David Walker calculates that the promises made to current and future retirees from these three programs alone will outstrip the revenues available to pay for them by a cool $41 trillion. Add in other promises Uncle Sam can’t keep (retirement benefits for federal workers, for example), along with the costs associated with our national debt, and the total approaches $53 trillion. That’s trillion with a “t.”

That’s the equivalent of a $175,000 mortgage for every man, woman and child in America, but without the home. Worse, according to Walker, that $53 trillion debt will increase by an additional $2 trillion for each year Congress remains in denial.

The painful choices ahead are well known, Bush continued. If Congress continues to kick the entitlement can down the road, we can expect “massive tax increases, sudden and drastic cuts in benefits, or crippling deficits.” In prior years, he noted, he proposed his own reforms to these programs, notably to Social Security, only to be rebuffed by skittish lawmakers in both parties. Bush challenged them to “offer your proposals and come up with a bipartisan solution to save these vital programs for our children and grandchildren.”

As if on cue, Medicare’s continued fiscal deterioration has triggered a little-noticed cost-containment provision in the 2003 prescription-drug law. Beginning Feb. 15, it should finally force lawmakers to confront Medicare’s unsustainable costs. First, a little background:

As envisioned by the Great Society liberals who created it, Medicare was supposed to be self-financing. Two dedicated revenue streams — a payroll tax assessed on workers to pay for hospital services and premiums charged to seniors to cover their doctor’s bills — would cover virtually all of the program’s costs. The logic was straightforward: For workers, the payroll tax enabled them to pre-fund their own retirement health costs and pay for what was then a relatively small population of seniors. For seniors, paying for a hefty chunk of their physician services exposed them to the real costs (and value) of the Medicare benefit. Taxpayers, meanwhile, would barely notice their relatively minor role in covering a fraction of physician costs.

Over the next four decades, however, this arrangement unraveled as lawmakers grew wary of asking seniors to shoulder their share of mounting Medicare costs. First, they offloaded about 80% of the cost of physician coverage to taxpayers. Then, the new prescription-drug program asked taxpayers, rather than seniors, to shoulder most of its multi-trillion dollar costs. What began as an experiment in intergenerational self-help has morphed into an open-ended claim on the taxes paid by every American worker.

Congressional leaders recognized we were poised to cross a fiscal Rubicon.

The so-called “Medicare trigger” provision requires the president and Congress to act when the accountants who monitor the troubled program’s finances project that the taxpayer’s share of total Medicare costs will become “excessive” (i.e., exceeds 45%). Medicare’s trustees set off that alarm in their 2007 annual report, thereby setting in motion a complex legislative ballet that commences on Feb. 15 when the president is expected to submit his plan. It will culminate this summer when the House and Senate must vote on a Medicare reform measure.

But Capitol Hill’s reaction to the president’s budget blueprint suggests that congressional leaders are as skittish as ever about confronting this beast. Bush proposes to lower Medicare’s annual rate of growth from 7.2% to 5% by reducing Uncle Sam’s Medicare payments to physicians and hospitals. Many experts, of course, argue that allowing a program in such fiscal straits to grow at more than twice the rate of inflation isn’t enough. But even this baby step is a step too far for many lawmakers.

To House Budget Committee Chairman John Spratt (D-S.C.), a 5% annual growth rate for Medicare would be “draconian.” To House Ways and Means Chairman Charles Rangel (D-N.Y.), it’s “devastating.” Senate Finance Committee Chairman Max Baucus (D-Mont.) simply dismissed the proposal because it “seems based on ideology.”

Bottom line: Even as they bemoan $400 billion annual budget deficits, lawmakers will do everything possible to leave the Medicare “trigger” on safety.

When future historians ask what caused the coming fiscal meltdown, they would do well to remember moments such as this — when the alarms bells rang and lawmakers ignored them.

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